Debt collection in South Korea

Debt collection in South Korea should begin with a legal and commercial assessment of the debtor, the debt documents and the practical route for recovery. For a Korean company, this assessment usually includes checking the exact legal name, registration data, business activity, address for service, available contracts, invoices, delivery records, correspondence, pending court cases, enforcement risks, signs of insolvency and whether the debtor has assets that may later be subject to compulsory execution.

This first review is especially important in South Korea because the recovery route may depend not only on the amount of the debt, but also on whether the debtor can be properly served, whether the claim is likely to be disputed, whether the debt is based on a commercial transaction, and whether urgent preservation of assets is needed before or during court proceedings.

If the debtor continues business activity, there are no clear signs that voluntary recovery is impossible, and the debt is supported by documents, the creditor may start with out-of-court debt collection in South Korea. At this stage, the creditor may request payment of the full debt, negotiate partial payment, agree a documented instalment schedule, arrange return of goods, set-off mutual obligations, transfer the debt to a third party or use another lawful settlement structure.

Communication with the debtor should be based on a written demand and documented follow-up by appropriate channels, including mail, email, telephone or messenger communication where this helps confirm the debtor’s position. The practical objective is to reach the debtor’s authorised representatives or decision makers, record the debtor’s response, obtain payment or a written settlement, and decide whether the case should move to a Korean court procedure.

If the debtor ignores the demand, disputes the claim without sufficient grounds, avoids communication, creates a service problem, transfers assets, becomes insolvent or raises limitation risks, it is advisable to move from negotiations to a formal recovery route under South Korean law.

A creditor may also consider provisional attachment where there is a risk that future enforcement will become impossible or substantially more difficult. This measure is relevant when the debtor may transfer assets, withdraw funds, dispose of receivables or otherwise reduce the practical value of a later judgment. In debt cases, provisional attachment may be aimed at preserving assets such as bank accounts, receivables, real estate, movable property or other property that could later be used for enforcement.

Before initiating court recovery, it is advisable to assess the statute of limitations. Under Article 162 of the Civil Act, the general limitation period for claims is ten years. For many business debts, Article 64 of the Commercial Act is also important because claims arising out of commercial activity are generally extinguished by prescription if they are not exercised for five years, unless another law provides a different period. If the claim has already been established by a judgment, court settlement, judicial conciliation, bankruptcy proceeding or another process having the same effect as a judgment, Article 165 of the Civil Act generally provides a ten-year limitation period.

Limitation may also be affected by legally significant steps such as a judicial claim, order for payment, intervention in bankruptcy proceedings, attachment, provisional attachment, provisional disposition or acknowledgement of the debt. After interruption, the limitation period starts to run again from the legally relevant point under the Civil Act.

South Korean legislation provides for judicial debt collection through ordinary civil proceedings and through the payment order procedure where the statutory conditions are met.

In ordinary proceedings, the creditor files a statement of claim with the competent Korean court. If the claim meets the procedural requirements, the court serves a copy of the claim on the defendant. Service is a key stage of the case because the defendant’s procedural deadlines usually start after service. If the defendant disputes the claim, the defendant must submit a written answer within 30 days after receiving the claim.

If the defendant does not submit a written answer within the required period, the court may issue a judgment without holding oral argument, treating the facts forming the basis of the claim as admitted, unless the case contains matters that must be investigated by the court. The same approach may apply where the defendant admits all facts forming the basis of the claim and does not make a separate substantive statement.

If the defendant submits a written answer within the required period, the court sets a date for oral argument. Before the hearing, the parties submit written statements explaining their claims, defences, evidence and attached documents. These submissions should be filed in a way that gives the other party sufficient time to prepare its position.

If the defendant does not appear at the hearing, the matters stated in the defendant’s written answer and other filed documents may still be treated as having been asserted, and the hearing may proceed. If a party does not expressly dispute facts stated by the other party during the pleadings, those facts may be treated as admitted, unless the overall pleadings show that they were disputed.

Article 199 of the Civil Procedure Act provides a statutory target under which judgment should be pronounced within five months from the filing of the lawsuit. After the court has clarified the material facts, examined evidence and heard the parties’ positions, the court completes the pleadings and generally pronounces judgment within two weeks after the close of pleadings, or within four weeks in complex cases.

The payment order procedure may be used for a claim seeking payment of a fixed amount of money, delivery of fungible things or delivery of securities. Under Article 462 of the Civil Procedure Act, this procedure is available where the debtor can be served in Korea by a method other than service by public notice. The creditor files an application with the court, and if the procedural requirements are met, the court issues a payment order requiring the debtor to pay the claimed amount within two weeks after service or to file an objection within the same two-week period.

If the debtor files a lawful objection within two weeks after receiving the payment order, the order loses effect within the scope of the objection, and the case is treated as ordinary litigation for that part of the claim. If no objection is filed, if an objection is withdrawn, or if the ruling rejecting an objection becomes final and conclusive, the payment order has the same effect as a final and conclusive judgment under Article 474 of the Civil Procedure Act.

The judgment of the court of first instance may be appealed to the court of second instance within two weeks from the date of service of the written judgment. The judgment of the court of second instance may be appealed to the Supreme Court of the Republic of Korea within two weeks from the date of service of the written judgment, where the appeal is based on grounds such as violation of the Constitution, statutes, regulations or procedural rules that affected the challenged judgment.

The decision of the Supreme Court is final. The five-month period stated in the Civil Procedure Act should be presented as a statutory target for appellate review after the case record is transferred to the appellate court, while the practical duration of an appeal may depend on service, the complexity of the dispute, the number of submissions, evidence issues and the scope of legal review.

If a foreign court judgment has already been obtained against a South Korean debtor or against a debtor with assets in South Korea, an enforcement judgment from a Korean court must first be obtained before compulsory execution based on that foreign judgment can begin. Recognition and enforcement of foreign judgments in Korea are governed mainly by Article 217 of the Civil Procedure Act and Articles 26 and 27 of the Civil Execution Act.

For recognition and enforcement of foreign judgments, the foreign judgment must generally be final and conclusive, the foreign court must have had jurisdiction under Korean principles of international jurisdiction, the defendant must have been properly served or must have participated in the foreign proceedings, recognition must not violate Korean public policy, and reciprocity or substantially similar treatment must exist between Korea and the state of origin. The Korean court does not conduct a new trial on the merits of the foreign dispute in the enforcement judgment procedure.

After the creditor obtains a Korean judgment, a final payment order or a Korean enforcement judgment for a foreign judgment, the creditor may proceed to compulsory execution. A claim established by judgment is generally subject to a ten-year limitation period under Article 165 of the Civil Act.

In South Korea, enforcement may be directed against the debtor’s bank accounts, receivables, movable property, real estate, securities and other attachable assets. Where legally available and economically justified, enforcement may also include attachment and sale of property, collection against claims owed to the debtor, enforcement against securities or enforcement measures connected with vessels.

Another recovery route is bankruptcy or insolvency-related proceedings against the debtor. A creditor may initiate bankruptcy proceedings where the debtor is insolvent. Under the Debtor Rehabilitation and Bankruptcy Act, insolvency may be indicated by suspension of payments. If the debtor is a corporation, bankruptcy may also become relevant where the amount of the corporation’s liabilities exceeds the amount of its assets.

If the debtor’s assets are insufficient to fully satisfy creditors, the bankruptcy trustee may challenge debtor actions that reduced the bankruptcy estate or harmed creditors. Such avoidable acts may include a gratuitous act or a compensated act equivalent to a gratuitous act, performed before or after six months from the relevant suspension of payments or bankruptcy filing, the provision of security or repayment of a debt in circumstances not connected with the debtor’s obligations, and acts performed with knowledge that they would harm creditors where the beneficiary also knew of that harmful effect at the time of the act.

The effect of avoiding such transactions is to return value to the bankruptcy estate and increase the assets available for creditor satisfaction and payment of bankruptcy costs. This can be important where the debtor transferred assets shortly before insolvency, preferred selected creditors, or entered into transactions that reduced the pool of assets available to other creditors.

Liability of directors or officers should be assessed separately from the company’s ordinary debt obligations. Under Korean corporate law, directors may be liable to third parties for damages where they intentionally or by gross negligence neglect their duties. In creditor cases, this may be relevant where fraudulent conduct, asset diversion, false transactions or other serious misconduct caused damage to creditors.

If you need support with international debt collection in South Korea, Grandliga can assist at each stage of the recovery process, including debtor and evidence assessment, preparation of a written demand, out-of-court negotiations, selection of the appropriate court procedure, preparation of the claim, use of the payment order procedure where applicable, recognition and enforcement of foreign judgments, compulsory execution against the debtor’s assets, and insolvency-related recovery measures where the debtor shows signs of insolvency.